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Sebi floats discussion paper on fintech regulatory sandbox

The term "regulatory sandbox" pertains to a live, testing environment where new products, processes, services and business models can be deployed on a limited set of eligible customers for a specified period of time with certain relaxations

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Markets regulator Securities and Exchange Board of India (Sebi) on Tuesday floated a discussion paper on regulatory sandbox for financial institutions, where exemptions would be given for developing new products and services.

According to Sebi, the term "regulatory sandbox" pertains to a live, testing environment where new products, processes, services and business models can be deployed on a limited set of eligible customers for a specified period of time with certain relaxations.

The purpose of the sandbox environment, as has been discussed in the Sebi's Committee on Financial and Regulatory Technologies (CFRT), is to start an early dialogue with companies experimenting with innovative technologies so that more innovation and technologically-intensive products may be brought under the purview of Sebi or regulatory ambit at an early stage and potential adverse events, if any, can be identified and avoided.

Last week, the regulator had proposed "innovation sandbox" framework with a view to facilitate the development and adoption of innovative fintech solutions.

Under this framework, fintech start-ups and entities not regulated by Sebi may use the innovation sandbox for offline testing of their proposed solution. The financial institutions regulated by Sebi shall be granted certain facilities and flexibilities to experiment with fintech solutions in a live environment and on real customers. These features will be fortified with necessary safeguards for investor protection and risk mitigation, Sebi said in the discussion paper.

It further said that the discussion paper aims to put forth the key principles and proposed approach for operationalising such 'regulatory sandbox'.

The sandbox, as per Sebi, is intended to serve as a testing ground for new business models and technologies that benefit the investors, Indian markets and the Indian economy at large. The regulator also envisages that the regulatory sandbox as a platform would facilitate seamless information sharing between innovative firms and itself.

While companies' participation in the sandbox would give them an opportunity to test their solutions on real customers/investors, it may help Sebi in framing policies that may reduce the time and cost of deploying new investor-centric solutions in the capital market.

The benefit of this regulation is greater participation of investors as well as people who are raising capital or providing services.

Sebi has invited written comments on the sandbox framework proposed in this discussion paper.

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